Tag Archives: Income tax

In recent weeks it was becoming increasingly clear that Governor Jerry Brown’s tax measure proposal was headed for defeat, because it included an unpopular sales tax hike. Numerous polls showed that it was trailing the rival Millionaire’s Tax — which proposed to only raise income taxes on the wealthy — by a substantial margin. Backers of the Millionaire’s Tax also had repeatedly — and rightly — rebuffed requests by Brown to drop their more popular measure in favor of his less popular one. So Brown, instead of pushing on with his doomed measure, decided to strike a deal with the sponsors of the Millionaire’s Tax and combine the two measures into one. It was a smart move.

There’s no doubt that the state’s beleaguered finances need a serious revenue boost. Budget cuts over the past few years have devastated funding for higher education, social services, state parks, and other important programs. The new compromise measure will bring in an estimated $9 billion annually if it passes.

Although Brown is already taking criticism from moderates — the Chroneditorial board today said that he “caved” — the deal makes sense politically. Tax measures are never easy to pass in California, and Democrats and progressives likely need a united front to be successful. Republicans were never going to endorse either tax measure, while infighting and competing measures threatened to divide traditional alliances on the left. For example, the California Federation of Teachers was backing the Millionaire’s Tax while the state’s other major teachers’ union, the California Teachers’ Association, was supporting Brown’s plan.Now, the two influential unions will be working together for the same proposal. In fact, virtually all the major unions in the state are expected to endorse the new tax measure.

And while the new plan has flaws, the decision by the Millionaire’s Tax sponsors to strike a deal with Brown was understandable, too. With two measures instead of one, opponents of the Millionaire’s Tax — i.e. Big Business and the wealthy — would have likely spent heavily to defeat it. Unfortunately, negative advertising works all too well in this country, and as a result, the Millionaire’s tax — as popular as it was — probably faced a tough fight. As such, we may have been left with two losing tax measures: Brown’s less popular one, and a Millionaire’s Tax battered by a barrage of negative ads financed by the One Percent.

The rich, of course, will probably go after the compromise measure, too. But at least Democrats and progressives will be united in their fight to pass it. Brown’s position as governor also will help. Big Business may be reticent about directly taking on the new proposal out of fear of angering him — and then not getting what they want on other issues.

The new compromise measure, if it passes, will increase income taxes on the wealthy at a higher rate than what Brown had proposed. Individuals making more than $500,000 a year, and couples making more than $1 million, will see a 3-percent-tax hike, which is the same as what the Millionaire’s Tax proposed (the governor had proposed a 2-percent increase). The new measure also lowers Brown’s proposed sales tax increase from .5 percent to .25 percent. The Millionaire’s tax would have left sales taxes as is.

At the same time, the new measure would raise taxes by 1 percent on individuals who make more than $250,000 a year, and couples who make more than $500,000 (which is the same as what Brown originally proposed); and by 2 percent on individuals who make more than $500,000 a year, and couples who make more than $600,000 a year (Brown had originally proposed a 1.5 percent hike). The Millionaire’s Tax would have only increased taxes on incomes above $1 million. The compromise also discards the Millionaire’s Tax proposal to hike taxes by 5 percent on incomes above $3 million.

The main drawback, of course, to the compromise deal is the sales tax increase. Sales taxes are regressive because they impact low- and middle-income wage earners the most. They’re especially a bad idea in a state in which low-income people already pay a higher effective tax rate (10.2 percent) than the wealthy (7.4 percent), when considering all taxes.

Nonetheless, the prospect of a united, winning campaign to raise revenues and help avoid further devastating budget cuts outweighs the sales tax flaw in the compromise deal. Moreover, the compromise plan will still help level the tax playing field in California, because it will raise taxes much more on the One Percent than on the 99 Percent.

My buddy, Gov. Jerry Brown and state lawmakers on Wednesday hailed Facebook’s much-anticipated plans for a public stock offering as a potential windfall for California’s cash-strapped treasury, while some already say the extra revenue should go to preventing cutbacks to public schools.

“If it is as big as it is being billed, then on behalf of a grateful state, I will go to Mark Zuckerberg’s house and either wash his windows or mow his lawn,” said Brown’s finance spokesman, H.D. Palmer. Brown himself offered to make Mark’s lunch for a year. Although, since I have eaten lunch with Jerry, I would recommend Mark do his own thing.

In a regulatory filing Wednesday with the Securities and Exchange Commission, the Menlo Park social networking giant indicated it hopes to raise $5 billion in its IPO. That would be the most for an Internet IPO since Google Inc.and its early backers raised $1.9 billion in 2004.California’s nonpartisan legislative analyst’s office estimates the state stands to reap hundreds of millions of dollars — perhaps more than $1 billion — in the near term from Facebook investors and employees profiting from stock transactions.

That could bring a much-needed windfall to a state government facing a $9.2 billion deficit.

Republican minority leaders Bob Huff and Connie Conway issued a statement Wednesday saying the state should use tax revenues related to Facebook’s IPO to pay for classroom needs. Under Brown’s budget proposal, the state will cut nearly $5 billion to public education if voters reject the governor’s plan to raise taxes in the fall.

“We should use this added revenue to protect our public school students from the governor’s trigger cuts and pay down the state’s debt service,” according to a joint statement by Huff and Conway.

Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento, cautioned that it’s unclear when tax revenue from those reaping the benefits of Facebook shares will reach state coffers. Democrats are, however, using the so-called Facebook effect to delay the governor’s proposed cuts to social programs.

California’s general fund relies heavily on income tax and capital gains taxes, which are sure to see a bump with the wealth to be made off Facebook stock sales.

The wealthy are essential to funding California state government: The top 1 percent of income earners pay about 40 percent of all income tax, the dominant source for the state’s general fund.

The Facebook IPO could help California reach its revenue targets for the year because the state did not assume that Facebook would go public.

Brown estimates the state will raise $56 billion from personal income taxes for the fiscal year that starts July 1. The analyst’s office gave a more conservative estimate at $53.1 billion for the same period.

While Facebook isn’t the state’s first IPO windfall, it could be its biggest.

Taxes from Google executives began flowing into state coffers in 2006, two years after the company went public. After cashing in more than 9 million shares valued at $3.7 billion that year, 16 Google insiders owed the state as much as $380 million in taxes. At the time, that was enough to cover the salaries of more than 3,000 state workers.

Facebook’s offering could be four times as large as Google’s IPO. Google’s market capitalization after its first day of public trading in 2004 was $27 billion. There has been widespread speculation that Facebook’s IPO might value the company at more than $100 billion.